Focus On Energy

Firing Up China's Solar Market

China’s solar panel industry has become the world’s biggest thanks to a simple formula: Produce in China, sell in Europe. Benefiting from generous financial backing at home—which the U.S. Department of Energy says amounted to $30 billion in state support in 2010—Chinese manufacturers have spent years boosting capacity. Since the domestic market for buying and installing solar power systems was tiny, the Chinese focused on exports, especially to Germany and other European countries where subsidies helped fuel demand for panels.

Given Europe’s debt crisis, the Continent is losing its appetite for solar subsidies that benefit China. The U.S. market isn’t promising, either, with the Obama administration investigating alleged dumping of Chinese panels. So mainland companies are looking for alternatives at home. Accelerating the shift, the government has started spending big to make solar power more affordable. About 70 percent of China’s solar module production will likely be exported this year, down from 95 percent in 2010, San Francisco-based researcher NPD Solarbuzz estimates.

Illustration by Kiji McCafferty

That’s paid off for Yingli Green Energy (YGE), China’s No. 2 solar panel manufacturer, which made 22 percent of its sales in China last year, up from 6 percent in 2010. Next year, Yingli expects domestic sales to jump to 35 percent of revenue. The country “has become one of the most promising emerging markets,” Yingli Chief Executive Officer Miao Liansheng said during an earnings call on Feb. 29.

Last year, China overtook Japan as Asia’s biggest solar market, and its growth is likely to continue. Some 3,000 megawatts of solar facilities will be installed in China this year, up from about 800 Mw in 2010, Bloomberg New Energy Finance reports. NPD Solarbuzz is even more optimistic, predicting the country will add about 5,000 Mw of solar capacity in 2012. With European governments considering further cuts in subsidies, NPD Solarbuzz reports, China might even finish the year as the world’s largest solar market, ahead of today’s leaders, Germany and Italy.

Smaller Chinese companies that buy from panel producers are gearing up, too. China Singyes Solar Technology (750:HK) sees demand for rooftop solar installations soaring as government subsidies pick up. Singyes expects sales of its rooftop equipment to double this year and account for 70 percent of revenue; its total sales this year are likely to be $490 million, according to data compiled by Bloomberg. “In the past, clients would talk about how many kilowatts are in a project,” says Singyes Chairman Liu Hongwei. “Now they are talking about how many megawatts.”

For years, solar took a back seat to wind as China’s preferred form of renewable energy. Solar was less efficient and cost about four times as much per kilowatt hour of production. As raw materials costs for panels have fallen, that gap has narrowed, says Ming Yang, vice president for business development at Shanghai panel maker JA Solar (JASO). Today, producing a kilowatt hour of solar power costs about 17¢, he says, vs. 12¢ for wind, and prices are falling fast.

That’s gotten the attention of Chinese officials. “There’s been a big change in the mindset of policy makers,” says Yang, whose company is on track to sell “north of 20 percent” of its production in China this year, more than double last year’s share. Like most in the industry, JA has benefited from an initiative dubbed Golden Sun that offers state support to developers of solar installations. Although introduced in 2009, Golden Sun started to take hold last year, when the government approved more than 600 Mw of projects. NPD Solarbuzz says there will be about 1,000 Mw of new Golden Sun projects in 2012.

Like Europe, China has started requiring “feed-in tariffs”—guaranteed prices utilities must pay solar power producers for their electricity. Though the rate fell to 16¢ per kilowatt hour this year from 18¢ in 2011, with production costs falling the lower amount is plenty, says NPD Solarbuzz analyst Ray Lian. “If this rate is maintained, we expect to see another surge in installations,” he says.

A larger Chinese market should be good news for renewable energy worldwide, with growing demand from China helping shore up prices at a time Europe is reassessing its solar energy policies. On Feb. 23, German Environment Minister Norbert Roettgen said his country would cut its assistance by as much as 29 percent. Although U.S. producers such as First Solar (FSLR) have made little headway in China, the country’s growth “will open up a much-needed source of demand,” says James Evans, a senior analyst with researcher Bloomberg Industries in London. A bigger Chinese market “will continue to allow the cost of solar technology to come down,” Evans says, “even without the European subsidized markets.”

The bottom line: With China poised to install 5,000 Mw of solar capacity this year, the country’s panel makers are refocusing on domestic sales.